Don't be surprised if both refineries close, experts say

Economists think the closure
of the Tesoro refinery was unavoidable, given the small size of Hawaii's oil
market and the state's pursuit of alternative energy policies designed to make
the local oil market even smaller.

"The total refining capacity of both
facilities," says the UH Economic Research Organization in a research
report, "has exceeded Hawaii's demand for refined products for quite some
time, and Hawaii's demand for oil is actually expected to shrink further."

Oil refineries are more profitable when they have enough
size to achieve economies of scale in their fundamental operating costs.
Hawaii's refineries are small, capable of a combined throughput of 150,000
barrels per day. Average refinery capacity is 400,000.

They also face diminishing demand in a state that
subsidizes solar power and electric cars. "What did you expect?" says
economist Paul Brewbaker. "These refineries have been operating in a
market where the government is actively trying to reduce their business."

Hawaii refining capacity already exceeds consumption. The
smaller Chevron refinery was built in 1962. The larger Tesoro refinery - with
75 percent more capacity - was built in 1970. Tesoro is the third company to
own it.

"It is clear that the closure of at least one of
Hawaii's refineries was expected, and barring some significant improvement in
the local refining industry Chevron may very well follow Tesoro's conversion to
an import facility," says UHERO.

UHERO predicts there will be little if any change in fuel
prices when the Tesoro refinery closes and sees the same effect on any
subsequent closure of the Chevron refinery because of the ready availability of
already-refined gasoline and diesel on the West Coast, but notes that the
picture might be different for Hawaiian Electric, which needs a less widely
available high grade of fuel for its power plants to meet EPA pollution
standards.

The main economic impact of the closure of one or both
refineries, if this is correct, is the loss of 100 jobs when Tesoro converts,
and more if Chevron eventually does.

Many residents on Kauai are still recovering and picking up the pieces two months after severe rainstorms caused devastating flood damage in April. Donations are still being accepted for those residents.

Many residents on Kauai are still recovering and picking up the pieces two months after severe rainstorms caused devastating flood damage in April. Donations are still being accepted for those residents.